Weekly Market Report – 20 September 2020
Rain has been forecast to hit the coffee growing areas of Brazil later this week. As forewarned last week, this unfortunately started a stampede and prices collapsed. Arabica coffee prices lost 18.95 cents/lb over the week, while robusta coffee prices, although lower, fared a lot better only losing $77/ton (3.5 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 125 to 130 toea/kg lower than they were last week.
Long-range weather forecasts for Brazil show rain hitting many coffee growing areas (but not all) later in the week to come and throughout the following week into early October. This has allayed fears that the arabica flowering would be delayed and also suggests that the season will be relatively normal. Adding to the downward pressure was the fact that Commitment of Traders (COT) report showed that the majority of funds were holding a 4-year record high long position, which inevitably exacerbated the stampede, especially on Monday when prices fell by more than 9 cents/lb. In addition, it must also be said that fears of a second wave of the Covid-19 virus further reducing demand added to the bearish tone seen throughout the week. GCA stock figures published this week would normally have been seen as bullish, but in the rush to sell, the market appears to have almost totally ignored the message they are clearly giving. US warehouse coffee stocks totalled 6,745,336 bags at the end of August, this is 309,013 bags, or 4.4% lower than the total for July and 478,973 bags (6.6%) lower than was recorded in August 2019. The total is also below the five-year average for the month of August, which is 6,819,328 bags. One of the reasons behind the robusta market’s apparent resilience is the fact that there is very little coffee being exported by Vietnam at the moment as the country awaits the new harvest. Furthermore, the latest data from the Vietnam Customs Department, shows that the country exported 1.67 million bags of coffee in August. This brought cumulative exports for the first eight months of the 2020 calendar year to 19.17 million bags, down 2.1% from the same period in 2019.
Once again there have not been any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable) suggest that movements in physical price differentials have been mixed this week. Given the fall in the futures markets, differentials have probably hardened but these changes may take time to be reflected in the data sources that can be accessed at the moment. Brazilian 3 /4’s appear to be up 2 cents at around minus 14; Honduras HG’s however, appear slightly lower at plus 23; Kenya AB FAQ’s are higher at plus 75/95; while Colombian UGQ’s are unmoved at plus 50; PNG Y1’s are steady at plus 9. If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 122.25 and 128.35 cents/lb.
The wave of panic selling this week was certainly overdone but given that prices fell every day of the week suggests that for the moment there is very little to be optimistic about. The market appears to have shrugged off the fall in GCA stock figures and is probably encouraged by the fact that the decline in certified stocks is slowing down, with only a fall of 450 bags being reported this week. Consequently, the outlook remains precarious, but there may well be bounce of some sort this week, with prices finishing the week higher, although any uptick is unlikely to recover anything more than a fraction of what was lost this week.